Orrick's Financial Industry Week in Review
May 23, 2011

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Financial Industry Developments

·         SEC Proposed Rules on Credit Ratings

·         CFPB Mortgage Loan Disclosure Initiative

·         Senate Hearing on the State of the Securitization Markets

·         Financial Services Committee Members Introduce GSE Reform Legislation 

·         MSRB Transparency Standard for Municipal Variable Rate Securities

·         Rating Agency Developments

RMBS Litigation

·         Court Dismisses Shareholder Derivative Action Against Citigroup Officers and Directors for Inadequate Pleading of Demand Futility

·         Court Declines to Consider U.S. Senate Report on Financial Crisis in Deciding Motion to Dismiss

Events

·         Life Settlements Breakfast Briefing

·         Orrick's Annual Financial Services Roundtable

Editorial Board
Howard Altarescu
Matt Craner
Edward Eisert
Steve Fink
Rhanda Moussa
Joshua Cutler
Amie Davis
Njoki Gatimu
Ben Geiger
Jesse Infeld
Kara Moskowitz
Mark Racic

Financial Industry Developments

 

SEC Proposed Rules on Credit Ratings

On May 18, pursuant to Section 932 of the Dodd-Frank Act, the SEC proposed rules for credit ratings, NRSROs, and third-party due diligence providers for ABS.  NRSROs would be required to: (i) report on internal controls; (ii) protect against conflicts of interest; (iii) establish professional standards for credit analysts; (iv) publicly provide disclosure concerning specific credit ratings and the methodology used; and (v) enhance public disclosure on the performance of credit ratings.  The proposed rules would also require a third-party due diligence provider to provide a public written certification to any NRSRO that rates the ABS.  Comments must be submitted within 60 days after publication in the Federal Register.  SEC Release.  SEC Proposed Rule.  

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CFPB Mortgage Loan Disclosure Initiative

On May 18, the Consumer Financial Protection Bureau announced an initiative to combine mortgage disclosures into a single form.  The initiative will involve the testing of two prototype forms that will inform the CFPB's formal rulemaking process.  Treasury Release.  Mortgage Disclosure Prototypes. 

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Senate Hearing on the State of the Securitization Markets

On May 18, the Senate Banking Committee held a hearing on the state of the securitization markets.  Senate Hearing. 

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Financial Services Committee Members Introduce GSE Reform Legislation

On May 13, members of the House Financial Services Committee introduced seven bills relating to GSE ReformPress Release. 

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MSRB Transparency Standard for Municipal Variable Rate Securities

On May 16, the MSRB announced a new transparency standard for municipal variable rate securities.  Under this standard, information will be made publicly available on EMMA that will allow investors to assess the level of demand, liquidity provisions, and auction procedures for such securities.  MSRB Release.

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Rating Agency Developments

 

On May 16, Moody's released its U.S. RMBS surveillance methodology for Scratch and Dent transactions.  Moody's Methodology. 

Note: Free registration is required for Moody's releases and reports.

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RMBS Litigation

 

Court Dismisses Shareholder Derivative Action Against Citigroup Officers and Directors for Inadequate Pleading of Demand Futility

On May 17, 2011, Judge Stein of the Southern District of New York granted defendants' motion to dismiss with prejudice this consolidated shareholder derivative action against current and former Citigroup officers and directors.  Plaintiffs alleged that defendants breached their fiduciary duties of care and loyalty by allowing Citigroup to invest in mortgage-backed securities; concealing Citigroup's exposure to those securities; committing securities fraud by making misleading statements regarding those securities; wasting corporate assets on the repurchase of Citigroup stock at inflated prices and the retirement package of the departing CEO; engaging in insider trading; and unjustly enriching themselves. The court granted defendants' motion to dismiss, noting that plaintiffs had failed to demand that Citigroup pursue the claims itself before filing suit and holding that plaintiffs failed to adequately plead that such a demand would have been futile. 
Decision.

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Court Declines to Consider U.S. Senate Report on Financial Crisis in Deciding Motion to Dismiss

On May 18, 2011, Judge Jones of the Southern District of New York rejected plaintiff's request that the Court consider a U.S. Senate report entitled "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" in deciding defendants' motion to dismiss.  The plaintiff's complaint alleges that Goldman Sachs committed fraud in connection with the sale of a collateralized debt obligation ("CDO") with collateral consisting of subprime mortgage-backed securities.  Plaintiff asserted that the Senate report contains an extensive discussion of the CDO sale at issue as well as citations to internal Goldman emails that, according to plaintiff, call into question defendants' assertions on the motion to dismiss.  The Court held that the Senate report went beyond what the Court could consider on a motion to dismiss and that plaintiff also failed to provide the Court with any basis for taking judicial notice of the report.  Decision.  Senate Report.  

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Events

 

Life Settlements Breakfast Briefing

May 26, 2011Orrick and Maple Life Financial will be discussing the recent developments in the life settlement market and how the changes are affecting business.  Please click here for more information and to RSVP.

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Orrick's Annual Financial Services Roundtable

June 14, 2011Orrick's Global Employment Law Group and in-house counsel will host an interactive discussion of critical employment law issues impacting the financial services industry.  Please click here for more information and to RSVP.

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